Russia cuts rates again as rouble rise eases inflationary woes

Russia’s central bank has lowered its key interest rate again as a strengthening rouble eased inflationary pressures.

The bank cut the rate on Thursday to 11 per cent from 14 per cent, the third time it has lowered borrowing costs in as many months. Rates were at a record of 20 per cent in early March when the rouble plummeted against the dollar in the initial days of the Russia-Ukraine conflict.

The currency has since doubled its value against the dollar, which sold for Rbs56 on Thursday on the official central bank exchange rate.

Inflation has been easing in recent weeks, slowing for the first time since last summer in the week to May 20, according to state statistics. Annual inflation slowed to 17.5 per cent as of May 20, from 17.8 per cent in April, it said.

“The latest weekly data point to a significant slowdown in the current rate of price growth,” the central bank said in a statement. “The easing of inflationary pressure is facilitated by the dynamics of the rouble exchange rate, along with a noticeable decrease in inflationary expectations of the population and businesses.”

The bank noted that external conditions remained “difficult” but said domestically the influx of funds for fixed-term rouble deposits and low lending activity limited pro-inflationary risks and calls to ease monetary conditions.

The bank forecasts that Russia’s inflation will slow to 5-7 per cent next year, and to 4 per cent in 2024. It had previously estimated this year’s inflation at 18-23 per cent.

Russia’s president Vladimir Putin, however, said Wednesday he did not expect this year’s inflation to exceed 15 per cent.

The bank’s next policy meeting is scheduled for June 10.

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